Simon Coveney (Cork South Central, Fine Gael)

I welcome the Bill before the House. I know that a constructive debate took place on this legislation in the Seanad and Fine Gael Senators felt they were listened to in that regard, which is important. Some of the Independent Senators were also involved in that debate, including Senator O'Toole.

The legislation is necessary for the reasons we discussed here last night, including energy security and broader climate change proposals. In addition, EU directives require us to move in this direction. For all these reasons, and more, the legislation is timely. The principle of introducing a blending obligation as a means of increasing the quantities of bio-fuel blended with petrol and diesel, is an approach that I would support.

Although I wish to raise with the Minister some issues concerning the legislation, I acknowledge that the introduction of such an obligation gives a level of certainty that we would not get through optional incentive schemes. If we are serious about dramatically increasing the percentage of bio-fuels used in transport, an obligatory scheme is the way to go. I commend the Minister on introducing such a scheme. We should not leave it at that, however. There should also be an incentive to encourage oil companies and fuel producers to go much further than the 4% obligation we are putting in place from July. I have a number of suggestions for the Minister as to how we could do that and I hope he will take them on board.

I wish to say a few words about the running of this scheme. The Minister is correct to ask NORA, the National Oil Reserves Agency, to administer and apply the scheme for obvious reasons, because the agency is already dealing with oil companies. The easiest way to apply an obligation scheme is on the big producers since one is only dealing with a small number of them, rather than trying to gain a levy further down the supply chain, which would be cumbersome and bureaucratic.

I wish to raise some issues concerning the levy. My understanding is that NORA is currently financed by a 2 cent per litre payment that all oil companies make. We are now going to extend that 2 cent per litre levy to bio-fuels. We are assuming that NORA will be able to recoup the increased budget it needs to be able to administer this bio-fuels obligation programme. Perhaps I am missing something, but it seems that what we are planning to do with this obligation is replace petrol and diesel with a percentage of ethanol and biodiesel. However, the net amounts of fuel being sold and used will remain the same. I do not see therefore how NORA will increase its income by applying a levy on bio-fuels. If Maxol or Shell pay a levy to NORA, they will still be selling roughly the same volumes of fuel. They will just be replacing some of the carbon-based fuel with a bio-fuel, so the levy amount should not change a whole lot. I do not see where the extra income is coming from for the five extra staff who are required within NORA. I would argue that we may need more than that number to ensure this is up and running properly. Can the Minister outline, perhaps in writing, how the finances of this scheme will work? If we are simply displacing some carbon-based fuel initially with 4% of bio-fuel, the net amount of fuel on which the levy is being paid is the same, if it is paid on a per litre basis. I need clarification on that point.

If a bio-fuels industry is developing in Ireland and if people are producing bio-fuel per se, they are also contributing to the levy, so I can understand that potentially one could have more home-grown fuel paying the levy, but that is not the way the levy works. It works on imported fuel and, on a per litre basis, a levy goes to NORA to manage the scheme. Unless we are using more fuel, however, I do not see how NORA will get more money from a levy that is applied on a per litre basis. That is a genuine question and not an attempt to catch out the Minister or the Department. I am just trying to understand the proposal.

The thinking on that levy might be somewhat flawed. If we are going to encourage companies to go beyond the 4% obligation, we will need to increase the levy somehow because we need to pay for this. Surely, however, we should also be loading the levy onto the carbon element of fuel production, rather than applying the same levy to bio-fuels that already applies to carbon-based fuels.

Between now and Committee Stage, I ask the Minister to consider restructuring the levy slightly so that whatever the cost to NORA of administering this bio-fuels obligation, it would recoup that by charging a slightly increased levy on the non-bio-fuel element per litre of fuel used. By giving a financial kickback, the Minister could provide an incentive to oil companies that use fuel with more than a 4% ethanol content or perhaps the Minister could consider suggesting that Government would only take a percentage levy up to the level of 4% from oil companies, but that if companies go beyond that they will not have to pay any levy on it. The same rationale should apply to excise. It would kickstart a demand for a higher blend than 4% of bio-fuel, if an exemption was given not just for the bio-fuel element of the fuel mix from excise, but if a target blend of 10% or 15% also had an excise implication for the non-bio-fuel element of that fuel mix.

In other words, we must provide a financial incentive to businesses to go beyond what they are obliged to do in terms of mixing and blending so that we can change the attitude that exists towards things like E85 which is used by those who happen to have a flexi-fuel car, as I have. People need a price incentive to buy a blend with a much higher percent of ethanol than they otherwise would. If there are no pricing incentives to switch, consumers will not switch over and there will not be a demand for flexi-fuel cars or for the relatively easy conversion from diesel engines to bio-diesel engines. People will not want to make the capital expenditure. There is more work to do in this area.

Perhaps the Minister cannot deal with the issue directly in this legislation but, if necessary, he should try and include the capacity to introduce ministerial orders in the legislation, as he did with regard to customs tariff issues and the definition of purity of ethanol. I will shortly turn to these issues. The Minister should not cast in stone the levy currently proposed in the legislation. We can be cleverer about this. Everything we do must incentivise and encourage fuel suppliers to increase bio-fuel content, particularly in bio-fuel that has been produced in Ireland. Like the French, we need to be cleverer about this. France requires domestic sourcing of blended bio-fuel in the oil industry. I would like the Minister to take these issues on board.

With regard to what we want the National Oil Reserve Agency, NORA, to do in terms of allocating bio-fuel obligation certificates, I understand the process being proposed in the Bill. It makes sense. It is unreasonable, particularly at the outset, to expect that people will be able to switch over to a new blending obligation system immediately. They need to be able to supplement what they are doing by purchasing obligation certificates. This approach also gives the right price indicators because it becomes more expensive not to change. Companies must therefore make the choice that they either switch to bio-fuels or pay for certificates that will allow them sell petrol or diesel based 100% on fossil based fuels. This message will be passed on to the consumer and they will realise that the higher the ethanol content of the blend they use, the cheaper the fuel will be. This is all welcome.

However, I am not quite clear about how this works with regard to the use of bio-gas as a fuel for transport. I would appreciate it if the Minister could provide a briefing note in that regard. It is only a matter of time before we consider fuelling our public transport fleet by bio-gas which is produced either from anaerobic digesters or by companies like Bord Gáis, or the ESB which will enter the gas market. Is there a certificate attached to the production of bio-gas if it is to be used in the transport sector? How does the definition work in this regard? Almost all of the definitions in the Bill are tailored for ethanol and bio-diesel. It seems to me we have underestimated the impact bio-gas or gas can have on the transport sector, particularly in areas such as public transport, whether trains, buses or taxis. Anybody who has been to Hong Kong and taken a taxi there will know that practically every taxi in that city is driven on gas.

I want an assurance that this legislation provides the necessary definitions and flexibility to facilitate this transition in Ireland should it happen in the next four to five years. We should not have to return and add to this legislation to cope with the production of bio-gas or with the bio-fuel certificates that may be required to make it more financially attractive to do it. It goes without saying that the Government should be considering the proactive creation of a market for gas based transport fuel, in particular bio-gas. It makes more commercial sense to produce gas here than some of the other products we are talking about promoting domestically.

I would like to make some comments on the debate in the Seanad. I understand the Minister has taken on board the two major suggestions made to him to try and kickstart a bio-fuel industry or to extend our small bio-fuel industry so as to create a much larger industry here. Most people understand the argument that there is not much point in introducing significant increases in bio-fuel blend into conventional fuels unless we can produce most of that bio-fuel here. There may be some sense to it from an environmental point of view, but it is a massive missed opportunity, particularly if, as a major agricultural country, we cannot grasp the opportunity that exists to produce bio-fuels here.

We would press two suggestions in this regard with the Minister. First, there is a need to put a definition in place that will attempt to give home producers a competitive advantage, without breaking either world or European trade rules. Issues of purity and definition, particularly for ethanol, are also important. It is important to distinguish between the quality of the product we could produce here from wheat or waste or a second generation agricultural or waste product. We have the potential to produce a purer product than is, for example, being produced from sugar cane in Brazil.

If this is true, we should be working with other European countries to ensure we encourage the development of a high quality product, which I understand is defined by alcohol or purity content, thereby giving our home grown producers a competitive advantage. We should not be apologetic about this. We should do this provided it does not cost us a fortune which we transfer onto consumers. I understand from what the Minister has said today that he has included a new section, 44(X), in the Bill which will give him the capacity to introduce a ministerial order without extra legislation being required so that he can deal with the definition issue with regard to purity and the implications this may have on tariffs that may be applied to the importation of ethanol from outside of the European union.

This brings me to the issue of the tariff structure. A strong argument has been made on this, primarily by the industry in Ireland which wants to expand the ethanol industry. If one looks across the European Union - it is very unusual that this would be the case - there are different tariff structures in place in different countries to promote domestic bio-fuels industries in those countries or in the European Union itself. Britain takes a different approach to Germany, and France takes a different approach altogether, with regard to whether there is a low or high import duty. Spain and Portugal are in Germany's camp and Denmark is in Britain's camp. We need to be very clear as to where we want to position Ireland in that context. I struggle to understand how this is being allowed by the European Commission. Applying entirely different import tariffs to different countries throughout the European Union is a very strange way of operating a common market. However, it seems to be making an exception for the bio-fuels industry when it comes to ethanol. I presume the Minister understands why.

I would caution against stating that just because of Ireland's very close, important and intermingled relationship with the United Kingdom, we have to do what it is doing. We do not. If we deem that the approach of Germany or France towards supporting a domestic bio-fuels industry is more suited to Ireland, then we should be brave enough to go and do it. If it causes problems with the United Kingdom, such as fuel smuggling across the Border, then so be it. We will solve them. Let us not just follow the lead of the United Kingdom on this just because it is doing what it is doing. There is some evidence to suggest a significant ethanol industry is developing there at present. That may be the case but the same factors may not apply to have the same result in Ireland.

I cannot stress forcefully enough how Irish farmers need new outlets and new ways of generating income. There is a desperation among certain sectors of the Irish agricultural community because of the revenues they were able to make over recent years and dropping incomes. This is an industry that can provide really exciting opportunities for them. This is also true of the energy industry but let us concentrate on fuels and bio-fuels in particular. I have spoken on biogas and there is also potential for biodiesel and bioethanol. We will never be able to produce ethanol in Ireland from the crops we are speaking about, namely, wheat or sugar beet, as cheaply as it produced from sugar cane in South America. Therefore, we need to either find other ways of producing it or to create an artificial market, which is what the European Union has done in all sorts of areas for many years. There are risks with that, as at some stage in the future an artificial market based on artificial prices outside of world prices could collapse due to a deal in five, ten or 15 years time at world trade negotiations, like what happened with the sugar industry.

We do not want to march our agricultural industry up a hill to have to march it back down in a few years. We need to be cautious about this but there is precedent for us to be brave, in terms of what other countries are doing and have successfully done in creating vibrant and profitable bio-fuel production operations, involving farmers and local business people with significant financial returns through creating an artificial market by applying import tariffs that allow that to happen. We must get that right here. We will probably discuss the figures in more detail on Committee Stage. We will bring forward suggestions which we think make sense. I genuinely have an open mind on this. As somebody who is very close to the agricultural industry, I want to see it work. However, I do not want us to put in place an artificial market that will collapse.

I also wish to discuss the new elements of this legislation which the Minister intends to introduce. In particular, I wish to concentrate on the proposal announced today by the Minister, which was referred to last night by the Minister of State, Deputy White, that he intends to use the Bill to introduce a windfall profits levy or tax on energy generators. The Minster knows I have been calling for this for quite some time. I have always recognised it is not a simple thing to do. I have a little dilemma as it is unfortunate that yet again we will use legislation to introduce a measure not connected with it, but this needs to be introduced. I will co-operate with it because it is the right thing to do. However, I would like to have seen more detail on it to be able to comment on it on Second Stage in the broad way we are discussing the other issues, rather than being confronted with a proposal on Committee Stage which I will have only one opportunity to amend.

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